Stocks Tumbling but Income Issues Quiet

I lost my dollar bet yesterday thinking that there would be a postponement of the Chinese tariffs–oh well stocks are acting fairly rational with a selloff, but not a crash type event.

Interest rates are off a bit, but preferreds and baby bonds are fairly quiet with only the normal suspects showing much action–some shippers, CBL (of course) and PG&E issues are moving around a bit–but they seem to every day so nothing new here.

Our holdings have been quiet all week. We have a few issues that we would sell at the right price-in fact we have a sell in on one right now.

We have a normal sized position in the UMH-C 6.75% preferred which we would sell at the right price, but it looks like we will probably go ahead and hold through the ex-dividend date next week.  Recall this was the issue that the company reopened with an announced 2 million share sale and then they went ahead and sold 3.6 million shares.  We had originally hoped for a quicker bounce back in share price from the $24.80 area it fell to (from $25.60), but today is at $25.01.  We had bought our position at $24.91 so it has not moved up enough to sell (a minimum of 1% and hopefully more).  It goes ex on Tuesday so we might just as well capture the 42 cent dividend and then see where it goes after ex.

We had an outsized position in the Kemper Corporation 7.375% baby bonds (KMPA) which went ex yesterday.  We held this for 6 weeks and captured the nice 46 cent dividend while breaking even on the share price–so almost 2% for the 6 weeks.  This issue is callable NOW so one doesn’t want to buy much above the current levels until more interest accrues in case of a call.  We are very much interested in repurchase of this issue down in the $25.10 area–although that may well not happen.  I think this is one of the best issues out there–7.375% coupon is super in this marketplace even for a non investment grade issue.  In our mind we debated whether to sell or simply continue holding–to me it was a coin toss, but a “bird in the hand” argument won out–plus we held an outsized position so we minimally needed to pare down the holdings.

22 thoughts on “Stocks Tumbling but Income Issues Quiet”

  1. Hard to believe SPKEP is nearly back to par already after what happened in December.

    I made the blunder of flipping wayyy too soon, hope I’m not the only one…

  2. Question about premiums. I hold some GS-B that lists for 27.17. About 80% of my shares were called a few months ago. I’m amazed anyone would pay over 8% premium on something that’s been partially called. Is there an unwritten rule that says partial redemptions are seldom completed? Granted the coupon is 6.2% but still, that’s a big premium.

    1. I have AHT-d that was called 50% a few years ago, but it still trades. I’m sure there may be a handful of other preferreds out there that are only partially called – but if the company wanted to get rid of at least part of the outstanding issue, I’m sure they have their eye on the remaining ones. So if you have a chance of selling for 27.17, I’d sell and take that profit and invest it in something else.

    2. I would take a partial call as evidence that the company would like to recall the remainder. Given, of course that the have the cash and the market had not moved in such a way that a call no longer made sense, e.g. rates moved higher, slope of yield curve changed, or the like.

      Folks are taking some big call risks these days. Some are rational but many are not.

      1. Bob, that above par, past call game was one I played hard and very well for many years. Never got stung once. But presently I really pretty much out of that game. PPX and AEH are the only two that fit that description that I own now. And PPX really isnt exposed due to the fact next interest payment more than covers current par premium. AEH will crank out divi real soon and apparently will survive one more anyways. So that is of minor call loss risk too. But I may flip that one for a divi payment anyways.
        I pretty much am compelled to keep PPX as my utility holding percentage is too low already, and nothing in the sector looks alluring to replace with.

        1. Right now, about a third of my pref holdings are past call. In cases where the issues are well above par I will dig deep to find a reason. Some times there is and some times there isn’t. Not that I can find. Personally, I won’t hold an issue way over par without finding a reason. And being many years past call isn’t a good enough reason to me. I owned 3 shares of HE-U when it got called. A part fill I bought many years ago. Glad it wasn’t a big position.

          It’s all about managing risk.

          1. I havent had luck lately, but there is one way above par, past call, I still try to snag. As I know the holding company owns 95% of the trading float. They dont wont to redeem the issue because they would have to redeem their shares also.

              1. Camroc, that has happened many times! Fortunately (well actually its unfortunately) my money supply is very finite, so I never run out of options, lol.

            1. A good example of a reason an issue will not be called – inside ownership in any form.

              Really have to dig!

  3. Tim, I really appreciate your informed, pragmatic and mark-to-market approach to the ups and downs of the never ending churn. Very educational and helpful.

  4. No way to enforce IP theft without continued trade wars. Our country has rebuilt Europe, Japan and China with our economic strength. US left with holding the bag in $22 trillion in debt but China has even a larger debt problem. Never should have allowed them in the WTO.

    1. The US carried the rest of the world on its back, economically and militarily, after WW II. Understandable. We were the last man standing.

      But that has changed. The economic children have grown up but their attitudes have not; they still want to ride the back of the US turtle, while constantly poking a stick in our eye.. That’s why we ended up with a bunch of one way “free-trade” agreements, and one-way mutual defense compacts.

      Long since time that came to an end.

      And, YES, China should NEVER have been admitted to WTO. WTO says you play by certain rules for which you are granted certain trade rights. China took all the rights but never even came close to playing by the rules. With China, it’s been a total one-way street. Again, time to end it.

  5. I believe that Kemper Corp. is contractually entitled to give a call notice at any time now with only 30 days notice, but is there a market “protocol” that would suggest the Company have mentioned a redemption in its latest earnings call and did, in fact, the Company mention a redemption? Forgive me I have free access to the earnings call transcript somewhere, but I am not going to pay Alpha for it and I can’t force myself to listen in to these things.

    Thanks (for everything!),

    1. BK – some companies telegraph a redemption (hint but nothing firm) but most just drop the hammer.

      If you do a close exam – the whole capital structure, past behavior, etc., you can usually handicap them pretty well. I haven’t done that in the case of KMPA. But this one is staying very close to par so the market is pricing in a high probability of a call.

      Personally, I wouldn’t buy in more than 10-15 cents above (stripped) par and if holding I’d get out at at 40-45 cents above (stripped) par.

      1. I took a chance on this one. Bought 400 @ 25.27 this morning. I’ll hold on and if they call so be it but quality with a yield is slim Pickens right now. It won’t hurt much and they may not call in which case I got a good price.

  6. This article from the Washington Post seems like a good review of th current situation.
    https://www.washingtonpost.com/business/2019/05/10/trump-defiant-trade-penalties-kick-warns-china-there-is-more-come/?utm_term=.0106df687cd5

    I’m waiting for the other shoe to drop — China’s response.

    In their shoes I would: Add tariffs on imports from red states (agriculture and autos), Sell some of my holdings on treasury bonds (impacting our rates) and Sign long term agreements with Russia for natural gas and Iran for oil (transacted in yuan). Additionally, North Korea sanctions would not be enforced.

    China is a sovereign nation.

    1. Yes, China is a sovereign nation, but so are we. And the Chinese take billions of $ annually from the US in theft of intellectual property. And we need to stop that. And if that means taking some pain the the process I vote for that.

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